USA Stepped-up basis for inherited account

[Penny Dini]

My wife's mother added her and her brother as owners of her Merrill-Lynch investment account (JTWROS). She did this so that they would have access to the funds if she became incapacitated and as part of her estate plan. After she died, M-L assigned a stepped-up basis to 1/3 of each child's share when the account was divided.

Neither child accessed the account while mom was alive. I have read some seemingly contradictory opinions as to whether the entire account could have received a stepped-up basis since the children never accessed the account.

Would someone please clarify for me? It's not a lot of money, but the stocks were in the account for a long time and most of the value is capital gains.

 

[BIG E]

You've overlooked something material.
At the time the account values were partly gifted to the mother's 2 children - what was the total value of the account?
It makes a difference because - it it exceeded the annual gift tax exclusion for the year gifted- there should have been a Form 709 gift tax return filed.
The answer also depends on how the account was titled after the 2 children were involved.
It makes no difference that the 2 beneficiaries didn't access the account during life. By putting their names as owners on the account - it made them co-owners where they each should have had taxable income/losses for financial activities after the transfer date even though mother got taxed on 100% because she was the primary owner. She then should have nomineed the tax information to the 2 children.
There should have been a legal document prepared stipulating the mother's intentions as far as the gift and rights to the assets.
And since the 2 children received their share of the assets prior to death, then their respective shares' basis is the prorated cost basis of the mother. FMV on date of death only relates to the mother's portion upon subsequently transferred to the 2 children.